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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 65.00 | ACUITE BBB | Stable | Assigned | - |
| Bank Loan Ratings | 67.22 | ACUITE BBB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 14.17 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding | 146.39 | - | - |
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Erratum: In the PR dated 23th July 2024, the section for brief writeup on rationale for rating action was erroneously missing and the same is included in this PR. |
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Rating Rationale |
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ACUITE has reaffirmed its long-term rating of 'ACUITE BBB' (read as ACUITE triple B) and short-term rating of 'ACUITE A3+' (read as ACUITE A three plus) on the Rs 81.39 crore bank facilities of Sri Langta Baba Steels Private Limited (SLBSPL). The outlook is ‘Stable’.
ACUITE has assigned its long-term rating of 'ACUITE BBB' (read as ACUITE triple B) on the Rs 65.00 crore bank facilities of Sri Langta Baba Steels Private Limited (SLBSPL). The outlook is ‘Stable’. Rationale for rating The rating reaffirmation reflects that their is an improvement in scale of operations as the company has sold more units in FY24 than FY23 and also they have increase the capacity utilization of the current installed capacity in FY24. However the revenue has been declined due to the lower average realization per unit. The operating margin has improved from 4.74% in FY23 to 5.96% in FY24 and also company has healthy finalcial risk profile. However the rating remains constrained on account of increase in working capital operations and suceptibility in profitability due to volatility in raw material prices. |
| About the Company |
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Incorporated in 2005, Sri Langta Baba Steels Private Limited (SLBSPL) runs a fully automatic steel re-rolling mill in Jharkhand to manufacture MS Billets and thermo-mechanically treated bars (TMT). The directors of the company are Mr. Mohan Prasad Saw and Mr. Suraj Kumar Gupta. The installed capacity of MS Billets is 144000 MTPA and TMT bars are 150000 MTPA. The TMT bars are sold under the brand-name ‘TUFFCON’.
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| Unsupported Rating |
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Not Applicable
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| Analytical Approach |
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Acuité has considered the standalone financial and business risk profile of Sri Langta Baba Steels Private Limited (SLBSPL).
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| Key Rating Drivers |
| Strengths |
| Experienced Management and long track record of operation
The directors, Mr. Mohan Prasad Saw and Mr. Suraj Kumar Gupta of Sri Langta Baba Steels Private Limited (SLBSPL), have been in the iron and steel industry for around two decades. Acuité derives comfort from the long experience of the promoters. SLBSPL has a long operational track record of nearly two decades. Acuité believes that the long track record of operations will benefit the company going forward. Financial Risk Profile The financial risk profile of the company is healthy marked by net-worth of Rs. 75.83 Crore in FY24 (prov.) against Rs. 61.67 Crore in FY23. The total debt of the company stood at Rs. 68.88 Crore in FY24 (prov.) which consists of long term debt of Rs. 3.23 Crore, Short term debt of Rs. 64.36 Crore and CPLTD of Rs. 1.29 Crore. Further, the debt-equity ratio of the company stood at 0.91 times in FY24 (prov.) against 1.01 times in FY23. The interest coverage ratio of the company stood at 4.71 times in FY24 (prov.) against 6.13 times in FY23. The DSCR of the company stood at 2.46 times in FY24 (prov.) against 3.31 times in FY23 and TOL/TNW ratio stood at 2.77 times in FY24 (prov.) against 2.98 times in FY23. |
| Weaknesses |
| Working capital operations
The working capital operations of the company is intensive marked by GCA days of 165 days in FY24 (prov.) against 118 days in FY23. There is an increase in the GCA days due to the inventory days of the company which stood at 89 days in FY24 (prov.) against 71 days in FY23, debtors days of the company stood at 34 days in FY24 (prov.) against 31 days in FY23 and creditors days stood at 43 days in FY24 (prov.) against 26 days in FY23. Susceptibility to volatility in raw material prices and cyclicality inherent in the steel industry Raw material consumption is the single largest cost component for the secondary players in iron and steel industry. The company does not have backward integration for its raw materials and the same is purchased from traders located in UP, Jharkhand, Orissa, Bengal and Madhya Pradesh. Further, the steel industry is sensitive to the shifting business cycles, including changes in the general economy, interest rates and seasonal changes in the demand and supply conditions in the market. Apart from the demand side fluctuations, the highly capital intensive nature of steel projects along-with the inordinate delays in the completion leads to demand supply mismatch. |
| Rating Sensitivities |
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| Liquidity Position |
| Adequate |
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The liquidity profile of the company is adequate. The net cash accruals of company stood at Rs. 19.79 Cr. in FY 24 (prov.) against the CPLTD of Rs. 4.11 Cr. for the same period giving some legroom for growth fund. The company has cash & bank position of Rs. 15.70 Cr. and current ratio stood at 1.37 times for FY 24 (prov.). The average fund based bank limit utilization is at 60.13% and non-fund based bank limit utilization is at 85.54% for the 6 months’ period ending June 2024.
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| Outlook: Stable |
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Acuité believes that the outlook on SLBSPL will remain 'Stable' over the medium term on account of the long track record of operations, experienced management and above average financial risk profile. The outlook may be revised to 'Positive' in case of significant growth in revenue or operating margins from the current levels. Conversely, the outlook may be revised to 'Negative' in case of a decline in revenue or operating margins, deterioration in financial risk profile or further elongation in its working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 24 (Provisional) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 515.86 | 595.67 |
| PAT | Rs. Cr. | 14.36 | 14.60 |
| PAT Margin | (%) | 2.78 | 2.45 |
| Total Debt/Tangible Net Worth | Times | 0.91 | 1.01 |
| PBDIT/Interest | Times | 4.71 | 6.13 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| Any other information |
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None
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| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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